Preparing for the Mobility Revolution

How key success factors converge for significant EV sales growth
May 2017

I recall the early trial of a purpose-designed battery electric vehicles (BEVs) in the late 1990s when GM introduced its purpose-built EV1, with 160 miles range (Gen II with 26 kWh) before “pulling the plug” in 2002. Then few OEMs introduced BEV versions of production vehicles, such as Renault with its Kangoo. These early attempts, without going back to the early 1900s, failed for at least three reasons: a very narrow product offering, limited performance combined with a high price, and a scare network of slow charging stations. The emergence of Tesla Model S crystallized a rally around EVs, building on early BEV attempts as well on Toyota’s uninterrupted HEV/PHEV efforts since 1997. Global warming and rising pollution levels have clearly become more evident, triggering a tightening of emission regulations across the globe, in particular in China. Actions are needed and EVs, whether hybrid (HEV), plug-in hybrid (PHEV) or even more so BEVs, offer the obvious solutions. But are we making progress on the three past pain points for BEVs to progressively become mainstream? The answer is clearly YES, but to what extent?

 

Where do BEV and PHEV sales stand? Last year, China was by far the largest market with 350k cars sold (of which 260k BEVs). Europe came in second with 222k (of which 90k BEVs), and then the US with 157k (of which 84k BEVs). This represented respectively 1.5%, 1.3% and 0.9% of total car sales.

 

Acceleration of BEV product offerings 

The buzz and relative success of Tesla Model S since its 2012 launch caught everyone’s attention, in particular Daimler, BMW and Audi which compete in the same price range. The early announcement of the Tesla Model 3, the recent launch of the Chevy Bolt (both around $35k), and to a lesser extend the mature Nissan Leaf and Renault Zoe, bring modern BEVs much closer to the heart of European and US markets. Incumbents are urgently scrambling to react at a time when electrification is required to meet emissions regulations. This is particularly true in China where the government is pushing hard to boost EV sales, aiming for 5m BEV and PHEV by 2020 with its New Energy Vehicle policy. This push may also give Chinese carmakers a strategic advantage as the global market goes electric.

 

As a result, a massive product blitz will start around 2019-2020 for all OEMs, e.g. Volkswagen (25 electrified vehicles by 2025), Ford (25 electrified vehicles by 2021), Daimler (10 BEVs by 2022, vs 2025 initially announced), PSA (11 electrified vehicles by 2021), etc. Even Toyota, who rejected BEVs in favor of Fuel Cell EVs, announced last November the launch of an accelerated BEV development program, led directly by its CEO. The biggest boom in BEV offerings is in China, as demonstrated at the recent Shanghai Motor Show. In China, there are currently about 70 BEV or PHEV models on the market.

 

Boost in BEV performance at lower price points

Range anxiety has long been a major road-block, but it is progressively being addressed. The Nissan Leaf offered 84 miles (EPA) when launched in 2010, the first Renault Zoe about 100 miles in 2012 (estimated from NEDC values) and the BMW i3 85 miles in 2013. Upgrades introduced in 2016 lifted the autonomy of these more common BEVs to respectively 107, 170 and 130 miles. The Chevy Bolt, introduced in 2016, with its 60 kWh battery, and the forthcoming Tesla Model 3 offer respectively 238 and 215 miles, a significant improvement, for about $35k. At a much higher price point, Tesla Model S’ autonomy ranges from 210 to close to 300 miles (with 60 to 100 kWh). Whereas this is still less than half of what a mid-size Diesel-powered car offers, recent ranges have become acceptable if combined with a dense and quick charging network (more below).

 

BEV prices remain high compared to equivalent ICE vehicles due to battery cost. This cost has substantially dropped from $1000/kWh in 2010 to about $250 today. Technical improvements and increased volumes are expected to bring cost to $100 somewhere around 2025-2030 depending on the source. Tesla anticipate that they will reach this threshold even earlier. As a result, BEVs are expected to be competitive with ICE-powered cars around 2025 when taking into account the total cost of ownership. 

 

What about BEVs driving performance? Early models were slow. The Tesla Roadster, while sold in small volumes, started to change perception. The Tesla Model S much further enhanced it, with 0-60 mph times between 5.5 and 2.3 sec (yes!). Currently the Chevy Bolt and BMW i3 reach 60 mph in about 7 sec. And Porsche realized vehicle electrification will help enhance their sporty image.

 

Acceleration in charging network density and performance

The sufficient presence of charging stations at home, at destination (e.g. work, shopping) and en-route (e.g. intercity corridors) will be a decisive factor for plug-in vehicle growth. The European Commission estimates that one public charging point per 10 cars is required in addition to private chargers. There are currently about 50k charging points in the US, 100k in Europe and 150k in China. A number of initiatives, both public and private, have been announced to enhance the charging network, in both density and power. OEMs are very much involved, such as Nissan (2k points installed in Europe over the past few years), a consortium led by Daimler, BMW, Ford and Volkswagen (1000s of high-powered charging points in Europe by 2020), Volkswagen ($2bn invested in the US in ZEV infrastructure and awareness programs over 10 years as a result of Diesel-gate) or Mercedes (recent $82m investment in US charging solutions leader ChargePoint).

 

Charging speed is also a critical factor, especially for stations located on intercity corridors. Ideally, stations installed there should provide 2 hours of driving (150-200 miles) in 15 minutes. To this end, the industry is working on a 350-400 kW charging infrastructure. However, the necessary on-board hardware is not available yet — voltage will increase from 400V to 800-1000V. Tesla’s superchargers provide 170 miles of autonomy in 30 min at up to 120 kW. The new BEVs recently announced show further progress, with Volkswagen promising 200+ miles charged in 30 min at 150 kW. 

 

Incentives to sustain the development of the market

The picture painted above looks very promising. However, BEVs still represent an emerging market. As such, it needs to be sustained by public incentives until economies of scale emerge, to justify the development of both vehicles and infrastructure. There have been several examples of volumes dropping significantly when incentives were massively reduced (e.g. Netherlands). Most European countries offer public incentives ranging from 500 to 15k€ per vehicle. In the US, there is a $7.5k federal tax deduction in addition to state-specific incentives. China is not any different with up to $9k of state incentives. Public subsidies should be progressively reduced as the BEV ecosystem matures and eventually eliminated.

 

Conclusion

It seems obvious that the conditions for a full deployment of plug-in vehicles will be met within the next few years: a broad selection of models offering competitive performance and priced in the market, supported by a dense and fast charging network. The future of mobility is definitely electric, and it is coming fast.

Marc Amblard

Also published on LinkedIn (https://goo.gl/E1Cq9X)

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